Conroy has “stuffed up” NBN pricing, says Hackett

In the latest salvo in an ongoing war of words with Stephen Conroy and NBN Co, Internode managing director Simon Hackett has accused the Communications Minister of having “stuffed up” the National Broadband Network pricing model in a way that will slow the growth of broadband in Australia.

On Monday this week NBN Co chief Mike Quigley said the company had opened discussions with Hackett over his ongoing pricing concerns but stopped short of agreeing to change what Hackett has previously described as NBN Co’s “insane” pricing model. The debate between the two companies and Conroy has been raging in the public arena since a landmark speech by Hackett in late March.

Over the succeeding weeks, NBN Co made a number of public attempts to further explain its pricing model, going into great detail about why it had chosen the specific mix, as well as publishing an online calculator that allows users to calculate projected wholesale costs for providing services to its planned network.

In an extensive interview with Business Spectator published this morning (click through to read it here), Hackett re-ignited the debate, arguing Conroy had “stuffed up” the pricing model for high-capacity usage on the network. “He’s been so focused on the transition of low-end users across the new network at 12 megabits, that weirdly the economics go strange at a 100 megabits,” he said, adding that NBN Co’s model had the potential to slow broadband growth in Australia generally.

Quigley noted on Monday that ISPs themselves would have to have some skin in the game, as well as NBN Co and the Government. “It’s also clear that we tested this with quite a number of [retail service providers],” the executive said of NBN Co’s pricing model. “Would they like our prices to be lower? Of course.”

In a statement, Shadow Minister for Regional Communications Luke Hartsuyker slammed the low numbers of Armidale residents who were so far connected to the network trial as “the magnificent seven” in a statement issued yesterday, claiming it raised a serious question mark about NBN pricing — despite the fact that high numbers of residents in the city have consented to have the NBN connected to their premises, and that the Armidale connections are expected to rise significantly in short order.

“When Apple launched their iPad last year, thousands of internet users lined the streets to get hold of the new device,” the politician said. “It was the same story two months later in July 2010 when Apple released the IPhone 4. Thousands of customers braved winter weather to wait overnight to buy the new wireless phone. Apple greeted the waiting with food, drinks and live music.”

“But at the launch of the Gillard Government’s NBN in Armidale, it was confirmed just seven Armidale customers have signed up. The fact that only seven people have signed up to the NBN highlights two things. Firstly, there is a seriously question mark over the amount customers are prepared to pay for higher speeds. And secondly, there is a serious question mark over the underlying demand for higher speeds delivered over fibre.”

Leader of the Opposition Tony Abbott also criticised the NBN on Wednesday, joining colleagues in linking the NBN trial take-up numbers to a lack of interest in the project.

“I fear that this is going to be typical of Labor’s scheme – that they’ll spend $50 odd billion to provide people with something that they don’t particularly want and certainly aren’t keen to pay for,” he said in a doorstop interview in Perth.

“I mean, in Tasmania less than 15 per cent of households have signed up for the service even though it’s virtually there for free. We already know that in Tasmania it cost them $30 million to roll fibre past some 4,000 houses – that’s an average price of about $7,500 per house. We know that Labor can’t be trusted to deliver infrastructure in a competent way, at good value for money. So look, I just think that the more that we learn about the National Broadband Network the more like a giant and unnecessary white elephant it seems.”

224 COMMENTS

Ok Hackett. Time to STFU now please. You’re starting to remind me of Kogan with your public outbursts. How about keeping your concerns private with NBN Co and working them out in a reasonable manor without resorting to phrases like “stuffed up” in interviews, that the media will inevitably latch on to and contort to suit their “NBN is doomed” stories.

We’ve had enough fuel added to the NBN fire lately with complete misrepresentation of the situation in Armidale and Tasmania. Do you want this thing to proceed or not? (Coming from a loyal Internode customer).

There you have it, The Truth, from one of the biggest vested interests in the NBN.
One who’s not talking with his wallet in mind. He’s not the only one ie Bevan Slatery (ex Pipe Networks).
And their are many others.
And just so as there is no confusion lets recap ;-)

A/ The NBN will DEPRESS broadband penetration !

B/ The NBN model (ie the FIBRE) is actually designed around delivering 12 mb/s. Something ADSL 2 + already delivers to about 75% of the population !! Note 100Mb/s is TODAY available to 2.8 million homes!!
An admission that speed and therefore fibre is extravagant redundant waste !

C/ Absolutely LTE with speed and MOBILITY will be a certain threat and in fact will KILL THE VIABILITY of the NBN. (as it only ever needs a small market share to do so)

D/ The Tassy “trial” has been going since June 2010. And in the 11 months since commencing with the unrealistic introductory offers, only 630 subscribers have joined. ONLY 15%. Note these prices will be illegal / unavailable once the ACCC rules on the NBNco submission.

E/ Armidale has 7 subscribers. not 70 Thousand, not 700, Just 7.
The connection to fibre is FREE. Less than 100 % Connection take up rate is a FAIL.
In ARMIDALE the connection take up rate is allegedly 87%.
In Tassy the connection take up rate is 47 % !!

There you have it, The Truth, from one of the biggest vested interests in the NBN.
One who’s not talking with his wallet in mind. He’s not the only one ie Bevan Slatery (ex Pipe Networks).
And their are many others.
And just so as there is no confusion lets recap ;-)

I’m pretty sure Simon is talking with his wallet in mind here. He stands to lose a lot of money under the current wholesale model if he makes the mistake of overestimating the demand for higher speed tier services.

Granted he is doing this to ensure that his customers get a fair deal, but in reality, he will, and has always, passed costs that his company can ill afford to bear onto his customers. I should know, I stuck with him through his latest battle with Telstra and their wholesale costs for their ADSL2+ ports.

A/ The NBN will DEPRESS broadband penetration !

Possibly. Especially if the pricing model is structured such that the benefit of the technology over other alternatives like LTE cannot be experienced by the lower income sector of the market.

B/ The NBN model (ie the FIBRE) is actually designed around delivering 12 mb/s. Something ADSL 2 + already delivers to about 75% of the population !! Note 100Mb/s is TODAY available to 2.8 million homes!!
An admission that speed and therefore fibre is extravagant redundant waste !

The technology plateform is designed to deliver an uncontented IR of 78Mbps down and 39Mbps, assuming 32 users per pipe (the current design spec for the NBN) to the next aggeration point. No existing technology within the Australian Residental Market, with the exception of some of the Greenfields FTTH projects, can deliever this. The arguement by Hackett is that the pricining model has been designed for 12Mbps, something he wishes to have rectified before the wholesale pricing goes live.

Also, I love thinking that because HFC networks do 100Mbps now it means we don’t need fibre. If you happen to have one of these wonderous 100Mbps DOCSIS 3.0 connections, please, try to upload something of signifiance. Oh wait, you’ve still got minimal upload bandwidth. And let’s hope you don’t have two maybe people sign up to the 100Mbps plan on your street, cause contention can bite hard.

C/ Absolutely LTE with speed and MOBILITY will be a certain threat and in fact will KILL THE VIABILITY of the NBN. (as it only ever needs a small market share to do so)

Anyone who thinks that wireless is seriously a direct competitor to fixed line connections needs their head checked. Currently for the same price as a given mobile broadband plan you get up to around 15 times more data on the fixed line equivelant. And that isn’t even taking into account the increased reliablity and better performance you get from the fixed line technology.

Their niches do intersect, yes, but there will always be a strong market for fixed line technology, unless there is some radical new technology that magics the way wireless is delievered by somehow negating problems line contention and spectrum needs.

D/ The Tassy “trial” has been going since June 2010. And in the 11 months since commencing with the unrealistic introductory offers, only 630 subscribers have joined. ONLY 15%. Note these prices will be illegal / unavailable once the ACCC rules on the NBNco submission.

Illegal? There is nothing illegal about a company selling a product on a loss, and that’s under the assumption that the prices will need to go up. Also, what part of trial do you not understand? 15% is actually a really good uptake considering it is an new technology. How many people used iPhones in the first 11 months? A new, emerging technology which is quite affordable and has untold benefits.

E/ Armidale has 7 subscribers. not 70 Thousand, not 700, Just 7.
The connection to fibre is FREE. Less than 100 % Connection take up rate is a FAIL.
In ARMIDALE the connection take up rate is allegedly 87%.
In Tassy the connection take up rate is 47 % !!

Those 7 customers were the system trailers signed on before Armidale was switched on. Expect that number to sweal in the coming months. Also, see above re emerging technologies.

Regarding your name, it seems you need one. Ignoring all the facts presented just shows your not interested in “reality” at all. Quoting the seven in Armidale as uptake is humorous as well as profoundly stupid. It is well known the uptake is north of %70 percent. Tassie was a rollout trial and consumer uptake wasn’t even a consideration. However you continue to ignore it and whine about 30 million cost. We have to trial a 36 billion dollar network somewhere… your backyard with one user will do eh? The only one looking fanatical here is you.

As one whose vote is earned not a given, I like to think I can evaluate politics pretty well…

Funny though being a swinging voter, primarily makes me centre (I suppose) but I find it most humorous, that those from the extreme far right, are the ones who consider themselves (and have posting identities such as) rational, reality check, democracy king, advocate etc…

Early days MW, most of the other ISP’s are tied up flogging ADSL2+, Naked DSL and wireless BB and trying to hang onto their customers, those two have always been not afraid to speak their mind, even on matters before the NBN was hastily put together on that ‘historic domestic flight’ by Rudd and Conroy on the blank pages of the In-Flight magazine.

I expect when the NBN is flogged at full commercial rates not at the giveaway pilot rates of today the ‘We want the NBN cheaper queue’ at the ACCC we will be even longer than the ‘We want Telstra cheaper was.

Simon Hackett isn’t trying to make the pricing cheaper, he is trying to make it better balanced and more flexiable for higher speed teirs, i.e. reducing the risk of prioviding the higher speed services to RSPs.

At current, if they start providing 100Mbps services in a given area they have to pay extra CVC in order to actively deliever the service if they have their customers below a threreshold. Once above that threashold the prices will scale linearly, but it is this intial cost that Simon feels may be too high.

I agree with Simon Hackett though, and I’m surprised so few others have commented on the issue. CVC is a completely useless and debilitating pricing scheme. It doesn’t exist on any wholesale network I’ve ever heard of throughout the world.

And because it’s priced so insanely high at $20/mbit, that brand new and shiny FTTH network is going to almost completely unutilized. Every 32 customers will have access to an uncontested 2.4 gbit/s of bandwidth (10 gbit/s once the network upgrades to XGPON). That’s an *uncontested* 80 mbps per customer! With the insane CVC rates the vast majority are going to be on 12 mbit/s while competing for contested and extremely costly bandwidth.

Basically less than 10% of the network is going to be utilized. Worst of all, the NBN corporate plan estimates CVC charges to drop to $10/mbit after TEN YEARS. International transit is currently at $40/mbit and dropping 50% literally every year. In a couple of years international transit will be less expensive than NBN bandwidth. That would be knee-slapping hilarious if it wasn’t true.

Verizon in the US is already testing XGPON. In a few years everyone will move to 10gbps per 32 user node, while NBN’s absurd CVC charges are still in place. That means less than 2-3% of the entire network will be utilized.

The biggest problem is that NBNCo needs to impress its users with the mind-bendingly fast speeds of an FTTH network. Mutating the pricing scheme so that it supports lower cost 12 mbps connections is so short-sighted it makes me weep at the thought of such beautiful technology going to waste.

I expect when the NBN is flogged at full commercial rates not at the giveaway pilot rates of today the ‘We want the NBN cheaper queue’ at the ACCC we will be even longer than the ‘We want Telstra cheaper was.

So if Simon Hackett isn’t trying to make the NBN cheaper, and AFAICT no one else is complaining about CVC charges, then where is this “We want to make the NBN cheaper queue?”

You do realise the “We want to make Telstra cheaper queue” came about because Telstra retail plans were undercutting there wholesale plans, an impossible occurrence under the NBN because the NBN cannot sell directly to customers.

Few actually care what SH is trying to accomplish here or even understand it. Instead, anyone that doesn’t unreservedly praise the golden calf get’s villified and attacked. Even if they happen to be some of the biggest movers and shakers in the IT/telecoms industry in the last 10 years causing increased delivery of service and better prices as a result of their actions (BS and SH). Even if SH is still very much in support of the NBN, but questions an aspect of it…

The pro-NBNers expect NBNCo to deliver their promises and NBNCo should, in a responsible way, be held accountable to do so, simple.

Sadly however, when people such as Simon ask questions, there are a few loose cannons who simply (for whatever their odd reasons) rather than see it as appropriate accountability, instantly want to claim NBN doomsday…

I’m surprised that you gave the Liberals “only seven people in Armidale / only 15% of the Tasmanian sites have signed up” sound bites a run here, Renai. As one of the few competent (independent) IT journalists in Australia I would have expected a bit of scrutiny with these comments, as detailed by NightKhaos above.

hey Chug, you’re right — I guess I needed some filler to bulk up the article, and if the Liberals are good at anything right now it’s providing NBN filler. However, I’ll be a little bit more careful in future about how I structure articles — with all the dross out there I’m trying to think more about that these days to keep Delimiter a quality outlet. Will try harder on this in future. Thanks for the feedback!

+1 . The Armidale figure in particular is completely meaningless and does nothing but misrepresent the situation.

As for Tassie, in metropolitan areas like Hobart there is nothing but excitement for the NBN. Tasmania overwhelmingly voted for Labor in the last federal election for a reason. As an island state with poor broadband we have a lot to gain from the NBN. Once stage 2 roll-out begins, the uptake percentage will soar.

“+1 . The Armidale figure in particular is completely meaningless and does nothing but misrepresent the situation. ”

Yes it’s funny how low uptake NBN Plan figures are defined as ‘meaningless’ but high connection figures are parroted loud and often.

What is conveniently overlooked in the Armidale ‘connection’ figures and I mean connections not sign-ups actually using it for BB, is that 4882 residences have/will have the NBN running past their residence in Stage 1.

Subtract the closed shop University of New England figure of which I assume the sole provider is AARNet and it is only 2900 residences, what will be meaningful SR is what percentage of that 2900 will sign up with a plan from the other 11 ISP’s active in the area.

I look forward to some ‘meaningful’ sign-up percentage being placed against those residences.

Let’s suppose NBN gets 100% uptake inside the university grounds (paid for by tax money), what does this tell you about expected uptake in the major cities? Tells you absolutely nothing. It’s in those major cities where the real make-or-break issue for NBN comes to play, and they discover whether they can pay for their infrastructure investment. Most of Australia is not university campus (go outside and have a look), so in order to measure uptake from the Armidale trial such that you have relevance to the mainstream roll out, you need to look at genuine households where they are making a genuine economic decision based on their household budget.

It is also meaningless to even consider uptake figures until plausible prices are included.

“You seem to have some difficulty understanding what his argument is.”

Oh they understand all right, but when faced with unpalatable truths you will find the NBN apologists either ignore them completely (the usual approach) or desperately divert off topic by usually going for the personal angle in futile attempts the sometimes reach a frenzy of despair to undermine the poster.

Tel, “It is also meaningless to even consider uptake figures until plausible prices are included”.

So since you’ve seen your brother, alain, down and out, blithering in rhymes, riddles, going around in circles and tried to come to his rescue… if the uptake figures are meaningless, why does your mate keep highlighting the low uptake area Brunswick in his daily FUD spiels. And when people reply, what about the other areas where there is excellent up take say, of course it’s free…

If you guys argued with any realism at all and without the 108 degree swings to suit the argument at any given time (in other words if you were “fair dinkum”), you could at times be taken seriously. But while ever NBNCo is damned if they do and don’t well really…!

Are you unable to quantify and analyse anything? Someone else recently came to the conclusion that you are unable to comprehend analogies, too…LOL

Funny how any pro-NBN info needs to be explained to you about 200 times (and you still refuse to accept it) yet even half an anti-NBN inference, you will run with and expand upon beyond any rational comprehension!

I don’t have a detailed list of which rooms will be visited by the NBN but it would seem very strange to rewire existing internet links that feed to the main UNE network (well maybe the uni wants to rid itself of leeches). If they really set it up that each student must organise their own internet via NBN and some ISP then I’d be very surprised but who knows, maybe that’s what will happen. More likely they will just use the NBN to carry data back into the main UNE network like the existing rooms and then charge students for the rooms with that service built in.

I guess we can revisit this when they are beyond the 7-person trial stage.

Rather than you blurting out absolutely unfounded rubbish and then needing 20 equally ridiculous comments to try to excuse your initial foolishness (and thus digging that hole deeper and deeper), wouldn’t it make more sense for you to comment factually straight up or not at all…?

You do go on don’t you? Trying to drum up support for a hypothetical argument when there are no figures available to support you then assuming that you are in the right, even with the lack of available evidence. Do I laugh or do I just feel sorry for you. Seems to me you have run out of other “reasonable” points to argue because you are, and have been, proved wrong time and time, and time again.

Where I have I been proved ‘wrong time and time again’, just parroting well worn cliche’s by the other NBN apologists in here is lazy, and don’t come back with the same old tired BS response of ‘oh many times’.

Every time I ask a question about specifics the poster usually disappears, goes for the personal attack or changes subject rapidly.

I asked a question about the Armidale rollout figures because a MAJOR proportion of that rollout area’s connection and sign-up figures is the closed shop University campus under provider AARNet of which all Universities are shareholders, subtract that what do you have Kevin?

You remind me of the footy team, who has one behind to the opponents 20 goals 8 behinds or 4 tries and a goal to your 1 goal or 6 goals to your 1 or 100 baskets to your 4…

But yet you still can’t quite accept or even rationally comprehend that you have been soundly thrashed in absolutely evert facet…! Your tenacity to blindly deny reality is either odd or downright pitiful!

You know, your two mates who innocently have gone in to bat for you over the last week (as they saw you clean bowled many times) are probably reading your latest desperate fluff/excuses and saying jeeebus, I didn’t actually put my name alongside and support “that guy”…did I?

Sorry alain you asked “Where I have I been proved ‘wrong time and time again’? and did’t receive an answer… so…

Since you asked… your top 10 (I ask others to submit their top 10’s too and perhaps Renai could provide a prize for the winner)…Most apt in relation to your comments alain, would be one of those fake poops!

So my top 10 alaimn gems

1. you as alter ego advocate called the RFP to build the NBN, a FTTN tender = alain (advocate) WRONG

2. you as advocate said the FFTN tender (actually the RFP – already proving you WRONG) was for FTTN only = alain WRONG

3. you as advocate said ADSL2+ exchanges were switched on by Telstra due to Coonans insistence = alain (advocate) WRONG

4. you as advocate said the NBN will be a success, then claimed it would be a failure (still, you strangely never explained your complete contradiction) – ONE IS WRONG

5. Only a few days back you as advocate claimed FTTN was being rolled out worldwide, more so than FTTH/P = alain WRONG

6. you claim to have facts to back your FUD – (but never supply them) = alain WRONG

7. you claim to be truthful and correct – LOL = alain PLAIN WRONG

8. you claim people like me to be baseless even when we provide conclusive proof = alain WRONG

9. following a claim by MW that you are FOS you claim not to be. Well the above FACTS prove …alain both FOS and WRONG AGAIN…!

10. YOU SWORE YOU WOULD NEVER CORRESPOND WITH ME EVER AGAIN AND ARE, SO HOW DO YOU EXPLAIN THAT…LOL alain = WORNG.

All those points have been responded to many times over and you know that, most of them are just blatantly incorrect in the first place, but then you know that as well.

You hope the majority of readers cannot be stuffed going back through all the posts going back many months anyway, and you are right I couldn’t be stuffed either, so you bring it all forward as if it has never been responded to.

That and your desperate copy & paste strategy of my posts across forums, across websites out of context and across different subject matter is all a bit sad, and shows how desperate you are to point score ( not that anyone cares one way or the other!) as you get hammered constantly across all subjects and websites everyday of the week

This isn’t even proper nation building, its a just massive financial investment so Labor couludd keep NBN off budget, hell if they didn’t waste so much money beforehand maybe the NBN would be such a crappy idea as it is now

RG: But what you’re saying is if they leave their policy as now stated it will slow the growth of broadband in Australia.

SH: Yes.

RG: That’s the exact reverse of what was expected.

SH: Yes. It’ll increase accessibility at the entry level, but at the moment one of the cost components is a thing called the CVC. And the point about it is it’s a cost component that’s linearly related to how much data you move down the network, and that factor happens to be $20 per megabit plus GST in the NBN Co’s model. The point is that the effective equivalent price we pay on our own DSL networks today is about $1 to $2 a megabit, and that factor of 10 to 20 difference means that if you wind up needing 10 times as much data to enter the video generation, we can’t discount it over the same discount curve as we’ve done over the last 20 years. So that will actually serve to suppress the take-up of high-capacity applications on the NBN in the first instance.

I wonder what Michael Wyres has to say about that, hmmm? NBN won’t be more expensive my ass

If it wasn’t for Sol’s ego and stupidity and the NWAT muppets (not mentioning any names – SL & VM) who wantonly were brain-washed into believing poor Telstra were disadvantaged by receiving a multi-$b golden goose PSTN and able to HIRE it to others…we wouldn’t be getting the current NBN…

Without you guys and your blind TLS share agenda – wanting a new vertically integrated monopoly network AND maximum ROI (for the initial Telstra FTTN network, Telstra backed out of…LOL, fools) and the incessant campaign to halt OPEL – we would already have FTTN in urban areas and OPEL in the bush…

Of course we would also, already be bitching about the prices (as Telstra’s/OPELs/private enterprises new $ driven networks would dictate) and the ho-hum performance, which everyone (probably even the current blind NBN naysayers…LOL) would now be asking why didn’t we do FTTP and be done with it?

So thanks Sol, Syd & Co… you are the reason Telstra aren’t building FTTN, we don’t have OPEL, Telstra are being separated and we are getting an NBN.. you guys are true Aussie heroes…LOL!!!!!!!!

Perhaps the reason you see this as some kind of “mutual admiration society” is because you are in a minority here. Most people want the NBN… I know that is probably a bit hard for you to understand or accept. Also I’ve noticed you play the victim card on more than one occasion and this is no exception. IMO your credibility on these websites should rightfully be questioned, you ignore facts when they are presented to you, accuse others of the very tactics you engage in and then wonder why people call you out on it. I would have flat out ignored you under normal circumstances but I have to admit I find your haphazard floundering hilariously entertaining now.

I’m not going to do a head count for you.
I’ll interpret this as you pulling statistics out of your ass to create empty rhetoric. Unless you can provide me with some statistical information to back your comment up, then saying that everyone wants as wireless is just as accurate as your statement (and just as meaningless as well)

Ahh HC, the other member of the NBN apologists mutual admiration society drops in to bolster up the troops with more generic nothing specific waffle ( Society motto:avoid specifics at all cost), got a email from RS did you?

That doesn’t even make any sense, the only thing I could possibly apologise for is that the NBN is going ahead. Sorry it’s going ahead? Sorry for your loss? Sorry the independents chose the better NBN plan rather than the slow patchwork network plan? Sorry you can’t accept facts?

Wow, I really nailed this one: accuse others of the very tactics you engage in

“got a email from RS did you?”

Is that what you think? Ok yes I got an email from RS because I wouldn’t have known about this article unless he sent me the link, nevermind the fact that he doesn’t even have my email address to begin with… derp!

I note the correspondences with Syd although lively, were cordial enough, until troll #1 entered with a smart***sed, totally off topic comment involving back-slapping, mutual admiration society and what not…

SH: “As the NBN expands the market, assuming it all happens the way we expect, we’ll see an increase in growth rate as we get a larger addressable market, but otherwise clearly broadband itself is pretty saturated where you can get it.”

in other words, while high data charges may limit profit growth potential in terms of offering internet products that consume a lot of bandwidth, the real attraction or allure of building the NBN to Telstra’s competitors is that it allows them to grow their gross margins along a different dimension by capturing more market share in the underserviced regional areas currently under Telstra’s domination.

Telstra’s competitors have a vested interest in the NBN succeeding in its present form not because it represents the best configuration of infrastructure investment in the communications arena and produces the best outcomes for consumers and taxpayers. instead, the wholesale-only, government-owned nature of the new fibre network affords them the best opportunity to steal market share away from Telstra and enhance their profits.

SH: “I like that idea because I like the notion that it should be possible for someone else to do what I’ve spent the last decade doing, right, to go from zero customers to a national customer base. Today that’s pretty much impossible because you can’t be big enough to afford the overheads.”

this won’t be possible unless your customers are willing to put up with substantial peak hour network congestion or you’re prepared to burn cash for an indefinite period. the solution for small, emerging ISPs is, of course, to access the NBN via a wholesale aggregator. after all, this will be the transition path for existing ISPs that have a small, relative-fractured, “national” customer base. their competitive position, in essence, doesn’t change as these ISPs will most likely be existing customers of Telstra Wholesale. while it’s clearly inferior to being direct customers of NBNco, it’s irrational to analogise the copper-to-fibre migration in terms of winding back the clock to an earlier era when the industry was still relatively nascent. the fact is, the broadband market is already highly mature and saturated and the industry structure is highly entrenched in terms of the distribution of customer bases among the incumbent telcos.

it’s pointless and economically disruptive to reset the clock back to 12 o’clock midnight just to rejig the manner in which the “total broadband cake” (or gross margins) is sliced up between new and current players if it doesn’t deliver any incremental benefits to consumers in the form of either lower prices or greater product differentiation. after all, given that NBNco’s already extracting an exorbitant “take” from total industry revenues in the form of “CVC charges”, there simply isn’t much left on the table for wholesale aggregators to extract in the form of “rent”. should genuine opportunities for product innovation arise, there’s no reason why it can’t take place on the back of access to the NBN via a wholesale aggregator. after all, the real promise of innovation is that it creates significant new value in the marketplace and, as such, the marginally higher platform costs of conducting your business through a wholesale aggregator shouldn’t jeopardise the new business model entirely.

SH: “The second issue, and maybe the more important one, is that when the NBN was originally proposed it felt to me like that the government was citing, like the Snowy Mountains scheme that they referred to at the time, that there would be a big subsidy that would be applied out of consolidated revenue to build a new road for consumers, especially in economically unviable areas. What it’s turned into is the government merely being the guarantor of a massive amount of equity injection to NBN Co, but the government is expecting the money back, so it’s not a subsidy, it’s not a grant, it’s a commercial investment needing a commercial return.”

as far as i recall, there’s never been a government proposal to fund the NBN via a grant or a “big subsidy” akin to “building public roads”. under the original FTTN tender, the government was apparently prepared to “co-invest” a few billion with the “FTTN builder” in order to improve the viability of an extended FTTN footprint. in fact, it was never made clear whether the government’s “contribution” would take the form of an equity injection in a joint venture or a loan, and also whether the capital provided would require a normal market yield or be treated as “subsidised financing”.

similarly, the current incarnation of the NBN has been consistently sold as an “investment” with suggestions of equity participation ranging from “mum and dad investors” to “private telcos”. so, if my recollections are correct, in relation to the NBN, there has never been any government initiative to fund it in the manner that most public infrastructure is built (i.e. a “grant” from consolidated tax revenue with zero payback).

however, it’s totally misleading to characterise the NBN as a “commercial investment needing a commercial return”. it’s clearly not a commercial investment, as Mr Quigley himself has stated that NBNco will not make a commercial return for at least 30 years. furthermore, while the government’s equity injection into NBNco is not a “grant”, it does constitute a considerable “public subsidy” as the putative 7% ROI is well below the market return required for a risky, speculative project of this size and scale.

SH: “That means that actually everyone in the city is going to have to pay more than they could have for the NBN in order for everyone in the country to pay the same price, so the cross subsidy is actually coming out of consumers’ pockets.”

well, that’s the unavoidable reality of transitioning from the old regime of “uniform retail pricing” (retail pricing parity), where Telstra is left to pick up the tab in the loss-making, non-cherry-picked markets, to the the new regime of “uniform wholesale pricing”. in other words, while the “cross-subsidy” used to come out of Telstra’s falling share price under the ACCC’s policy of implementing “geographically-de-averaged” ULL pricing, it’ll now have to be borne equally by all market participants. that sounds fair to me. of course, all this just means that instead of running to the ACCC for “subsidies” in the form of artificially-depressed ULL prices, Telstra’s competitors now run to the government with both eyes on taxpayer largesse.

SH: “The NBN Co’s pricing model is substantially more expensive in terms of some of its cost components than we currently pay to run our ADSL network, but unless NBN Co do that, they can’t get the money back that the government is demanding. So, there is a conga line here that starts with government policy, goes to NBN Co, goes to retail service providers like us, and goes to consumers. And really the cost driver is coming out of government policy, and this actually means something deep for consumers.”

it’s true that the driver of this whole NBN pricing mess emanates from government policy. however, the underlying problem isn’t the government’s justified refusal to pull out further “big subsidies” or “grants” to bankroll or underwrite “cheap access” to the brand new fibre network by private ISPs. the underlying problem is that the current investment configuration of the NBN is uneconomic. the logical solution to an overly-expensive fibre network is not to subsidise access to it, but to reduce the footprint of the network, and consequently, NBNco’s bloated cost structure.

after all, private ISPs are the only entities that will gain from further taxpayer-subsidisation of the NBN. for broadband consumers, what we “gain” in terms of “cheaper access” to the fibre network will be offset by higher taxes to fund the “big subsidies” or “grants” that Internode demands (i.e. a zero-sum game). so, in effect, “cheap fibre” for consumers is an illusion. however, the potential for further (taxpayer-subsidised) profit growth for private ISPs is very real and tantalising. i hardly think it’s wise for a government that’s struggling to balance the books to implement “telco welfare”.

SH: “They’re making the city pay for it in proportion to the amount you use the NBN, not in proportion for instance to taxable income or anything else. So, the distinction here is it’s not like the universal service obligation, it’s not like the principle that the Government will subsidise uneconomic areas as required and we all kind of equally pay for it. The city is paying for the bush policy and there’s no ambiguity about it.”

by definition, given that the vast majority of income and tax revenue is generated by the wealthy and densely-populated “cities”, the city always pays for the bush. the essential difference with the NBN is that, to the extent taxpayers can avoid using the NBN, they’ll pay less “tax” than otherwise.

SH: “He’s stuffed up high-capacity usage until the model gets fixed. He’s been so focused on the transition of low end users across the new network at 12 megabits, that weirdly the economics go strange at a 100 megabits.”

if you accept NBNco’s cost structure as a given parameter, the wholesale pricing model they’ve implemented actually makes a lot of sense. the simple fact is, if the reach and scope of the NBN was properly designed to reflect the true revenue generating potential of a national fixed-line network in Australia (by factoring in household spending capacity), NBNco could simply impose a flat access charge and do away with the variable data charge.

however, this is clearly not the case. given the adopted cost parameters, if NBNco were to eliminate the variable CVC charges, they’d be forced to jack up port fees by a substantial amount in order to preserve revenue targets. of course, the AVC charges associated with the higher speed tiers would rise the most because of the higher capacity provisioning required for these ports. in effect, the “CVC-adjusted” port fees for these higher speed tiers reflect the “locking-in” or “bundling-in” of fixed contention ratios. however, by doing so, NBNco will have eliminated its marketing flexibility in terms of offering ports bundled with different data allowances and contention ratios to its customers.

in other words, by replacing the proposed pricing mechanism of a “two-part tariff” with a single fixed tariff, NBNco will price out many potential subscribers to the NBN (if not completely, then at least from the higher speed tiers). doing so will only make NBNco’s already challenging revenue targets harder to achieve. on the other hand, keeping port fees low facilitates greater pricing differentiation across the speed tiers and maximises market potential.

SH: “It’s fixable later and I would still prefer us to have the right network with the wrong cost model because the cost model can be fixed later than to not have it at all.”

in other words, it’s preferable to plunge head first and blow billions of dollars of taxpayers’ money on an overly-expensive fibre network… and then let a future government mop up the mess later by writing-off a big chunk of the investment at taxpayers’ expense.

SH: “This is a 50-year network and they should be more patient about the investment of their capital in order to stimulate the usage.”

in other words, the government should throw more taxpayers’ money at the NBN to “stimulate” the bottomline of private ISPs.

SH: “So, the effect you’ll get is that the entry level prices will look like current entry level prices, but all the higher end prices are likely to be more expensive than you currently see on our direct DSL networks. This is the only way it works, if you press one corner of the table, the other corner of the table has to rise.”

this is hardly surprising. the fact is, by arbitrarily replacing the entire copper network with an inordinately-expensive fibre network, the government’s jacking up the cost base of our fixed-line infrastructure relative to average household income. hence, the “entry-level corner of the table” has to remain tethered to current ADSL pricing (which reflects actual household spending capacity) resulting in a steep “pricing curve”. NBNco’s gamble is that sufficient big-spending consumers will pop out of the woodwork and fill up the steepest parts of the “pricing curve”, thereby, allowing the government to earn back its investment.

SH: “This is interesting, isn’t it? It’s a great example of that old adage that we’re all equal but some people are more equal than others. Telstra are certainly way unequal here because of that special deal… Telstra will wind up with this enormous number of billions of dollars to not even to sell the copper network, but to just agree to switch it off in principle.”

the “inequality” between Telstra and market minnows like Internode arises from the fact that Telstra’s shareholders have substantially larger amounts of capital invested (or at risk) in the industry. to put it differently, Telstra shareholders have more skin in the game. a significant portion of that capital is tied up in the copper network. by agreeing to shutdown the copper network and forcibly migrating their existing customers over to the new fibre network, Telstra’s forgoing billions of dollars of future wholesale revenue. what is outrageous about the “Telstra deal” isn’t the fact that they’re getting due compensation for “lost profits”, it’s the fact that NBNco’s retail subscribers will ultimately bear the cost of shutting down a network they’ve been deprived from using (i.e. the billions paid to Telstra will be recouped from NBN access charges).

SH: “And being paid that enormous amount as everyone shifts means that they will have a marketing and shareholder return budget that is eye watering and that necessarily causes a great concern to everyone else. You know, if the vertically integrated monster is going to get paid quite that amount of money, then it’s difficult to see them not using an awful lot of it as a marketing fund to re-monopolise the industry at the point of customer migration, legally and in plain sight, by just offering incredibly good deals.”

the “Telstra deal” effectively liquidates a significant portion of their balance sheet and makes the company “cash-rich”. while Telstra will undoubtedly use some of the “cash reserves” to fund “marketing initiatives”, they’re not going to pour the whole lot down a drain. after all, the lesson of “OneTel” was: [in spite of financial backing from two of Australia’s richest families] if you sell a good or service at less than cost, you’ll end up going bankrupt. in other words, allocations of “marketing dollars” ultimately have to be proportionate to the underlying size of the market. hence, the onus is on long-term market participants to be “sufficiently capitalized” relative to the market they’re serving. in any event, given the implementation of “CVC charges”, Telstra’s real competitive advantage in product pricing lies in the size, scale and diversity of its existing customer base. having a large balance sheet is merely an added bonus.

SH: “I hope that government policy winds up finding some way to countervail that as expressed in the NBN Co deal. But I tell you what, after 20 years of dealing with Telstra, I can tell you one thing about law which is, you can’t legislate for nice.”

there’s a fundamental difference between a “business” and a “charity”, especially a business that’s directly funding the retirement of millions of pensioners. the truth is the whole notion or promise of a “level playing-field” was a convenient myth invented to grease the “political sell” of the NBN. short of massive state intervention to make every telco “equal” in terms of subscriber base, asset mix and size of balance sheet, there will never be a “level playing-field” in anything.

SH: “It’s about the fact that Telstra in general appreciates something very obvious, which is the NBN fails without their participation. Because previous governments have sold the entity, they get to commercially insist that they won’t play unless they are paid off handsomely and they’re not silly people. So, it’s a really difficult situation where in principle it’s cheaper for NBN Co to pay Telstra off like this than it is to build around them. In practice, I wish they’d build around them because otherwise you’re doing a deal with the devil in order to make the devil play nicely and gee, there’s not a good history of that is there?”

assuming that it’s feasible to “build around” Telstra’s fixed network, the NBN still fails without Telstra’s “participation” because Telstra would then retain its valuable metro customer base, shrink the operational footprint of the copper network and drive NBNco into bankruptcy with its superior cost structure. to be realistic, the NBN would never “take-off” without Telstra’s agreement to forcibly migrate all of its customers over to the super-expensive fibre network. furthermore, Telstra’s only getting “minimal” compensation for shutting down the copper network. if Telstra were allowed to invest in FTTN, the value of the “last-mile” would increase significantly beyond the valuation imputed in the current deal. of course, it’s more fun to toss emotive adjectives like “devil” and “monster” around instead of acknowledging the simple facts.

SH: “Well, that’s the challenge, isn’t it? As I said earlier, we’re barely large enough to make that work and there may be some regional areas where we just can’t unless we choose to permanently cross subsidise those places for the sake of saying we’re national. When you split the country into a 121 chunks and take it down to our, let’s say 4 per cent market share, you wind up with, in absolute terms, a very small number of customers in some of those places against the overhead costs of doing it.”

the issues surrounding the “number of POIs” and “CVC charges” have been mischaracterised. when you introduce capacity charges into the wholesale pricing model, the requirement to provision for “peak usage” as opposed to “average usage” naturally results in the creation of capacity-related “overheads” for access seekers. the existence of this economic phenomena is totally independent from the absolute level of the CVC charge itself. (of course, if you price capacity at a nominal level close to zero, the “overhead” mathematically becomes insignificant – but this is a trivial result.) the “economies” that result are further exacerbated when you introduce different port speeds because a subscriber mix that is skewed towards the lower speed tiers will reinforce the “dis-economies” of a small subscriber base (as proportionately more capacity has to be provisioned for the higher speed tiers).

naturally, as with all “overheads”, the larger and more diverse your subscriber base, the lower you’ll sit on the average cost curve. because everyone’s accessing the same infrastructure and paying the same rate for capacity, the only determinant of your “relative competitiveness”, or your ability to pass on CVC charges, is the size of your customer base. the absolute level of the CVC charge is only a scaling factor – it determines the absolute position of the average cost curve but has no impact on the relative positioning on the curve itself. however, the implications of introducing capacity charges into the wholesale pricing model are more complicated than that. essentially, because ISPs have different-sized subscriber bases, they will all sit on different “average cost curves” depending on the aggregate amount of CVC capacity that is purchased. hence, in reality, the optimisation of capacity usage occurs along two different but related dimensions: along an average cost curve and across different “average cost curves”.

to the extent that capacity provisioning for “peak usage” doesn’t factor in “equivalent” peak usage across all subscribers, the total amount of capacity purchased always reflects the imposition of a contention ratio. for a given target contention ratio, optimisation along an average cost curve implies operating at a fixed point along the curve such that total capacity provisioned bears a fixed relation (or ratio) to the number of subscribers. optimisation across different “average cost curves”, on the other hand, reflects the migration across different cost curves as higher amounts of aggregate capacity are purchased to maintain fixed contention for a larger number of subscribers. however, when you’re dealing with larger and larger customer bases, the “economies” that manifest from the requirement to provision for “peak usage” are self-inforcing due to compositional changes.

essentially, as the “pool of subscribers” increase, “diversification effects” kick in which reduce the (positive) correlation in usage patterns. the fall in usage correlation reduces the “average variance” of total bandwidth usage and generates “peak capacity savings”. ultimately, this means that the cost of provisioning “CVC capacity” is logarithmic with respect to the size of the subscriber base. one way of visualising the “economies” in terms of the movement across the different “average cost curves” is to interpret the rise in “capacity savings” as a fall in the target contention ratio across the cost curves. in other words, as more aggregate capacity is purchased (or as the average cost curve shifts out), we’re operating further out along the cost curve while still maintaining the same levels of network congestion.

the ultimate implications of all this is that the imposition of capacity charges in the wholesale pricing model and the “economies” they generate introduces “natural monopoly” characteristics into wholesale access of the NBN. essentially, the “economies” transform the “linear” CVC capacity charge into a “logarithmic” charge. this phenomena is totally independent of the “level” of the CVC charge. however, the logarithmic nature of the cost of capacity provisioning does have an impact on how NBNco prices capacity in absolute terms. given that the logarithmic nature of capacity costs is independent of the level of the CVC charge and the resultant “economies” will drive consolidation of customer bases, NBNco has to assume a highly-concentrated industry structure in setting prices to achieve their revenue target. in other words, instead of formulating a pricing mechanism that allows small ISPs with a limited number of subscribers to survive, NBNco has to set prices that reflect maximum efficiency or optimal utilisation of CVC capacity within a highly-consolidated market structure. logically, to maintain the same aggregate CVC revenues, the level of the CVC charge has to be higher in the case of an industry comprised of several large customer bases relative to one comprised of many tiny customer bases.

is there anything NBNco can do in term of CVC pricing that will foster an industry structure which allows smaller ISPs to survive? to create a market which discourages subscriber base consolidation, NBNco will have to counteract the “economies” embedded in the logarithmic cost of capacity provisioning. logically, this implies replacing the “linear” CVC charge with a charge which is “linear” up to some desired level of aggregate capacity (which correlates with a specific number of subscribers given a fixed contention ratio) and then “exponential” thereafter. as a matter of fact, due to the presence of other “overheads” such as the cost of provisioning backhaul, the “exponential” segment of the CVC charge will have to more than offset the “logarithmic economies” in order to arrest industry consolidation. in short, unless NBNco were able to reach backwards and control the pricing of almost every cost element that goes into running an ISP, any attempt to shape the market structure by manipulating a single cost element will necessitate massive distortion of the CVC pricing mechanism.

relative to a 14 POI model, the implementation of a 121 POI model increases the level of customer base fragmentation for all ISPs. obviously, for any POI, the ISPs that are most likely to have a sufficient subscriber count to be positioned near the lowest point of the “long-run average cost curve” will be the likes of Telstra and Optus. this clearly gives them a competitive advantage in terms of product pricing. hence, short of resorting to wholesale aggregators, smaller ISPs will be forced to consolidate their customers bases around the POIs where they have sufficient numbers to be competitive.

this is where the irony arises. the promise or allure of a wholesale-only fibre platform was that it would allow Telstra’s competitors an opportunity to expand their market share into the regional areas currently dominated by Telstra. instead, the “overheads” or “economies of scale” created by the introduction of “CVC charges” actually forces the smaller ISPs with fragmented customer bases to consolidate (or shrink) them around POIs where they have a sufficient existing “foothold”. hence, in some instances, the major telcos may actually gain market share from the market minnows. furthermore, the necessity of provisioning backhaul to every POI contributes an additional layer of “capacity overhead” in the calculus of average cost curves.

so, what are the diffferences between implementing 14 POIs vs 121 POIs in terms of market outcomes? the 14 POI model essentially increases the likelihood that smaller ISPs with fragmented subscriber bases will be able to transition to the new fibre regime as direct customers of NBNco. in reality, given the rapid fall-off in subscriber base numbers once you move outside the top 5 telcos, most of these ISPs will still be too small to survive without resorting to wholesale aggregators. hence, due to the lop-sided concentration of subscribers among the big 5, a reversion to NBNco’s preferred 14 POI model won’t have much impact on the overall industry structure. however, it’ll have a significant impact on players such as Internode because their customer size has them sitting precariously on the margin between accessing the NBN as direct customers of NBNco and resorting to wholesale aggregators. thus, it’s not surprising that the most vocal and aggressive critics of NBNco’s wholesale pricing model and the ACCC’s existing 121 POIs determination haven’t been the smallest ISPs, but the player that is most affected on the margin.

what are the implications for NBNco in terms of revenue? under either scenario, a “long-run steady-state” would imply that retail subscribers are distributed such that the customer bases of all “surviving” ISPs are sitting nearest the lowest point of the “long-run average cost curve”. in other words, the market should “self-organise” such that CVC capacity is efficiently or optimally utilised. assuming that the market size of many of the regional POIs will be under the subscriber count corresponding to the lowest point on the “long-run average cost curve”, for a given level of the CVC charge, NBNco’s revenue take in the form of “CVC charges” should be lower under the 14 POI model due to higher efficiencies in the utilisation of CVC capacity. hence, theoretically, a reversion to a 14 POI model from the 121 POI model should necessitate an upwards adjustment to the level of the CVC charge.

SH: “Exactly. What the US has seen is, as the Netflix generation has taken hold, people’s download quotas have gone up by a factor of 10. You’ve got people routinely hitting a 100-150 gigabyte a month downloads where they used to download 15. The difference is just all the high-definition movies that they’re paying for and watching, but here in Australia that $20 per megabit in cost will mean that if you’re buying services from a retailer, you will have to move to a higher download quota plan to do it. In other words, as a consumer you will have to pay maybe $20 a month more to your provider in order to have enough quota to start accessing those movies.”

Netflix took off in the US because most internet users have uncapped plans or zero data charges. some Australian consumers may well be willing to spend an extra $20/mth in retail fees to Netflix to watch movies over the internet. however, if they have to fork out an extra $20/mth to NBNco on “platform charges” on top of the fees paid to Netflix, the IPTV business model won’t work in Australia. essentially, to justify outlaying $20/mth on “platform charges”, you’d have to be spending at least $40/mth on Netflix content. in other words, it doesn’t make sense to spend more on “bandwidth fees” than on “actual content”. bottomline, with these cost parameters, the domestic market for IPTV will be too small to contribute enough revenue to NBNco.

SH: And what they have said in their business model is there’ll be a tipping point, where that $20 per megabit fee starts being lowered in response to increases in their income, so that they’ll maintain their income on the curve they promised the Government. So their promise is that they will bring the prices down as the consumption goes up, but the question is when do we hit that tipping point, how wide is the period over which that happens, and do they suppress demand too heavily for too long and the and not even reach it? You know, I think it should be low so that they actually get this enormous initial take up.

assume that by immediately lowering the CVC charge from $20/Mbit to $10/Mbit, the extra amount you pay to NBNco in “bandwidth fees” falls from $20/mth to $10/mth. factoring in $40/mth of “content royalties”, the total retail cost falls from $60/mth to $50/mth. assuming that IPTV subscriptions rise by an amount proportionate to the fall in prices (i.e. one-sixth), NBNco’s revenue take will still have fallen by a third. in other words, the static elasticities are such that a reduction in the CVC charge will not result in higher overall revenues.

the fact is, the projected fall in the CVC charge from $20/Mbit to $10/Mbit does not reflect a movement along the demand curve, but rather an outwards shift in the demand curve over time. it’s the temporal change in elasticities that allows NBNco to earn higher revenues while dropping prices.

And the conclusion you want us to draw from this big wall of text is… what?

You have made serveal interesting points, you have restated serveal points that should be obvious, but ultimately, all you have done is thrown information at us.

Also, it is a minor annoyance, but please, learn to use empahsis, correct grammer and capitalisation. You are making the job of reading this piece of information about four times harder than it should be simply because your text is laid out in such a way that I cannot determine easily if you are quoting Simon Hackett or it is your own anaylsis.

And finally, I have to ask, what was the rationale behind providing this big wall of text? How precisely does it relate to the article above? And most importantly, who are you actually expecting to read this? Because honestly, even as a keen follower of all the NBN related news, who should probably be interested in your anaylsis of the situation, I didn’t read half of it, and not because I didn’t want to.

That certainly was a big wall of text, I’m not reading it either, this is a comments section not an essay section, there’s more words in it than the original article… and they say we dont need 100mbit connections :-)

If he’s trying to say we don’t need 100Mbps connections that’s a very long winded way of saying it. To I got the overall impression of “Simon Hackett has no idea what he is talking about.” Which if true is somewhat amusing.

I find it amusing because unless I am much mistaken you aren’t the head of a multi-million dollar Telecom are you? Do you assume that I think the Simon Hackett is some kind of saint who can do no wrong? Do you also assume that what he is discussing can somehow be considered contrary to my agenda? Clearly you don’t know me very well.

SH (well, Internode) provided me (and the rest of Tasmania) with ADSL services, at a loss, for a couple of years – while other ISPs were pulling out of the state or adding surcharges – so he’s not all Mr Scrooge.

*You are making the job of reading this piece of information about four times harder than it should be*

apologies, but the issues are highly complex and i’m trying to cover all angles while cramming everything into compact paragraphs.

*I cannot determine easily if you are quoting Simon Hackett or it is your own anaylsis.*

SH’s quoted statements are in “inverted commas” (except for the last quote).

*How precisely does it relate to the article above?*

oh, it definitely relates to the article as the article’s basically about SH’s interview with KGB at Business Spectator and i’m dissecting SH’s arguments in the interview point-by-point. my opinion is that his public statements and posturing on the key issues surrounding the NBN business model are highly-misleading and, ultimately, self-serving. you’ll have to read through my detailed discussion to (hopefully) understand my arguments.

*And most importantly, who are you actually expecting to read this?*

anyone who wants to improve their understanding of the issues surrounding the NBN. of course, everyone’s free to exercice their right to “TLDR” ;)

apologies, but the issues are highly complex and i’m trying to cover all angles while cramming everything into compact paragraphs.

There is your first mistake. By trying to cram information you have lost all logical flow to it. Look, whenever I reply to an article or a comment in a thread I rate my response based upon the following: “What question is it I am answering, and does my reply actually answer it?”

oh, it definitely relates to the article as the article’s basically about SH’s interview with KGB at Business Spectator and i’m dissecting SH’s arguments in the interview point-by-point. my opinion is that his public statements and posturing on the key issues surrounding the NBN business model are highly-misleading and, ultimately, self-serving. you’ll have to read through my detailed discussion to (hopefully) understand my arguments.

First question: if this is a point by point rebuttal to an article that isn’t this one why are you making the rebuttal here. Last time I checked Business Spectator had a comments function?

Second question: Since when has anyone who has commented on the NBN not being doing it to service his or her own agenda? That doesn’t mean there isn’t any merit to what he is saying. As I have eluded to before, it might just be a case of right problem, wrong solution.

anyone who wants to improve their understanding of the issues surrounding the NBN. of course, everyone’s free to exercice their right to “TLDR” ;)

I am positive the issues at discussion here has been outlined in a concise way somewhere else with a conclusion that matches yours, written in a much easier to read and comfortable manner. I apologise for saying so, but as you are not apt at the art of “getting to the frelling point”, which is the impression I get from discussions with you of late, it might be wise for you to consider an alternative means of conveyance, i.e. find someone who did get to the frelling point and using their analysis.

Look the thing is, facts are facts, and unless you say Hackett is lying then under the NBN, data usage cost is around 10-20x higher (as a minimum) then what it currently is with ADSL. That means either the NBNCo is banking on everyone forking out $$$ to pay for actually using the fibre network, or that we will have a massive number of ligh t users (>20x more then we have now) to subsidize everyone

Ive been saying this for at least half a year now, but NBN will send Australia backwards with that pricing scheme

Look the thing is, facts are facts, and unless you say Hackett is lying then under the NBN, data usage cost is around 10-20x higher (as a minimum) then what it currently is with ADSL.

I would love to see some verification of this in terms of hard numbers, because my analysis of the situation paints a fair less dire outcome. Yes, I note that data usage charges will likely go up from the status quo, and this does in fact concern me, but not by 10x to 20x.

Ive been saying this for at least half a year now, but NBN will send Australia backwards with that pricing scheme

Are you under some sort of delusion here that no one has been listening?

Further, what precisely does your reply have to do with anything? I am stating to Tosh that I am concerned that he isn’t presenting his argument in a easy to read manner, and quite possibly, in the wrong forum altogether. At no point did I imply he is wrong.

I would love to see some verification of this in terms of hard numbers, because my analysis of the situation paints a fair less dire outcome. Yes, I note that data usage charges will likely go up from the status quo, and this does in fact concern me, but not by 10x to 20x.

No it is between 10x to 20x (and thats for internode, on a company like TPG it would be even higher). Here is the direct quote Hackett gives

SH: Yes. It’ll increase accessibility at the entry level, but at the moment one of the cost components is a thing called the CVC. And the point about it is it’s a cost component that’s linearly related to how much data you move down the network, and that factor happens to be $20 per megabit plus GST in the NBN Co’s model. The point is that the effective equivalent price we pay on our own DSL networks today is about $1 to $2 a megabit, and that factor of 10 to 20 difference means that if you wind up needing 10 times as much data to enter the video generation, we can’t discount it over the same discount curve as we’ve done over the last 20 years. So that will actually serve to suppress the take-up of high-capacity applications on the NBN in the first instance.

You figures are incorrect on this matter (you wouldn’t even know the correct figures anyways, you don’t run an ISP)

No it is between 10x to 20x (and thats for internode, on a company like TPG it would be even higher)

I thought you were saying that data costs would go up 10x to 20x for the consumer. I apologise.

You figures are incorrect on this matter (you wouldn’t even know the correct figures anyways, you don’t run an ISP)

My figures were based upon the cost to consumers, and I do not see customers being forced to pay 10x to 20x as much for the same quota allowance as now under the NBN. Which is what I thought you were saying.

My figures were based upon the cost to consumers, and I do not see customers being forced to pay 10x to 20x as much for the same quota allowance as now under the NBN. Which is what I thought you were saying.

Uhhh, yes they will be. What do you think, that all ISP’s will absorb the costs and run at a loss? Who is going to pay that extra cost, the boogey man?

If it costs ISP’s 10-20x more money to provide that amount of data, they will past this extra cost onto consumers, its as simple as that. Also note that this is for xDSL speeds, once you go into fiber speed territory this will shoot up exponentially, which Hackett also states

There is also nothing that ISP’s can do, themselves, to lower that, because its a government owned monopoly. At least with DSLAMS, they can invest their own capital to lower costs instead of using Telstras ACVC (which is basically what every ISP does now), under NBN there is no such alternative

The amount of quota an ISP issues you to consume, be it 2GB, 200GB or “Unlimited” is not in any way proportional to the amount of back-haul they get charged. The only way you could state the relationship was directly 1:1 would be if they charged based upon “worst case contention ratio”. Which they don’t.

No, quota isn’t proportional to back-haul pricing. Quota is merely a method for an ISP to break down average cost of providing a service over a series of tiers. There is no functional reason for it to exist except for this reason. In most of the rest of the world, they instead give the service a reasonable contention ratio, and then charge every single user based upon the average, because it doesn’t really matter to them how much “data” you use as they aren’t charged for this, they are charged based upon peak traffic.

So the only reason the price for a given quota is going to go up is if the price ISPs pay to provide a given service goes up. So let us look at the wholesale price:

A 25/10 service (equivalent to an excellent close to the exchange ADSL2+ service) will cost the ISP in terms of CVC and AVC an average of $53.34 per month per customer. Quite a bit more than you are paying now yes, but hardly by a factor of 10 as you seem to be trying to imply. And it possibly isn’t even that bad when you consider the used contention ratio (30:1) is a little bit generous and further that that cost includes voice services by default, that would otherwise cost the wholesaler $22.10 on top of their ULL/LSS charges of now $16 a month.

To clarify, what I mean by quota not being proportional is that it costs the ISP the same amount to give you 10GB of quota as it does to give you a 1TB. The quotas they offer you are arbitrary and merely a method of keeping their peak traffic levels down. To account for say paying say twice as much to provide a service due to an increase in back-haul charges, they cannot just “half your quota” to make up the difference as to do that will not actually half their costs. In fact, there is no reason to expect their costs to be affected at all by such a change.

People using quota translates into how much backhaul the ISP’s use, which is a cost. You make the internal backhaul (CVC) 10-20x more expensive, it will cost the ISP’s 10-20x more for that portion of their budget, and they will pass that extra cost onto the consumers.

Of course the extra backhaul cost will get passed onto the consumer but:

* Not in the form of reduced quota.

* Not in the form of a 10x – 20x increase in the cost of access.

Why? Because when customers increase or decrease quota the amount of bandwidth they use does not change because CVC is charged based upon the size of the VC, not the peak bandwidth used by the ISP.

Quota therefore can only be used as a mechanism to create disincentive for users to overuse the network.

A user who only uses a small amount of quota will not result in a reduction in the amount of CVC an ISP needs to provide a their service at a given contention ratio.

ISPs may opt to provide a higher contention ratio for light users, however they risk getting congestion on the network a peak times, meaning they will likely have a “sweet spot” of contention depending on the QoS they intend to provide.

Quota based pricing is marketing bullshit. Heavy user shaping is a far more effective policy or culling problem users except it is unpopular with the market as medium and light customers think they are “subsidising” heavy users, when in reality the cost to provide each customer is nominally the same.

Heavy user shaping, while unpopular heavy use customers, quickly teaches heavy users to be considerate of other users on the network, and when combined with information such as real time loading information, heavy customers learn to do their non essential traffic during downtime. We already see this with peak and off peak quota.

yes, the cost of provisioning for a certain level of quota is proportional to “backhaul pricing”.

the variable cost of provisioning a certain quota, Q:

C(Q) = (avg bandwidth + overhead) * $/mbps

products which offer higher quotas will attract subscribers who consume higher average bandwidth. hence, the cost of “provisioning” these products is proportional to “backhaul pricing”.

*Quota is merely a method for an ISP to break down average cost of providing a service over a series of tiers.*

this is precisely the reason why you can’t collapse CVC charges into AVC charges. by implementing “quotas”, you can more accurately align product pricing with product costs. if you just offered a single product with uniform pricing, you’re restricting your ability to offer “value” to different segments of the market.

*There is no functional reason for it to exist except for this reason.*

there’s no functional reason for you to breathe than to stay alive.

*A 25/10 service (equivalent to an excellent close to the exchange ADSL2+ service) will cost the ISP in terms of CVC and AVC an average of $53.34 per month per customer. Quite a bit more than you are paying now yes, but hardly by a factor of 10 as you seem to be trying to imply. And it possibly isn’t even that bad when you consider the used contention ratio (30:1) is a little bit generous and further that that cost includes voice services by default, that would otherwise cost the wholesaler $22.10 on top of their ULL/LSS charges of now $16 a month.*

so, total wholesale cost of $53.34 gives you: ($53.34 – $30) / $20/mbit = 1.167mbit ~ 38GB quota…. (and you still have to provision backhaul from the POIs to POPs)

the cost of provisioning the same “voice & data package” using LSS: ($20 + $2.50) + (1.167 * $2/mbit) = $24.83… (but that includes the cost of backhaul from the copper exchange back to the POPs)

*To clarify, what I mean by quota not being proportional is that it costs the ISP the same amount to give you 10GB of quota as it does to give you a 1TB.*

ISPs have to buy “bandwidth” from Telstra in the form of “AVGC charges”. higher quotas for a particular price point imply higher average bandwidth consumed which means higher costs to the ISP for a fixed level of contention.

*The quotas they offer you are arbitrary and merely a method of keeping their peak traffic levels down.*

the quotas are definitely NOT arbitrary. for a given Telstra retail price point, other ISPs have to offer more quota than Telstra to “create value” for consumers and remain competitive. pushing quotas up across the pricing range doesn’t cost Telstra anything because they own the CAN and backhaul. other ISPs have to provision and buy sufficient “bandwidth” to meet higher quotas for a fixed level of contention.

*To account for say paying say twice as much to provide a service due to an increase in back-haul charges, they cannot just “half your quota” to make up the difference as to do that will not actually half their costs. In fact, there is no reason to expect their costs to be affected at all by such a change.*

again, you’re wrong. when Telstra raises quotas across their pricing range, other ISPs are forced to do the same to maintain a “competitive edge” vis-a-vis Telstra. however, it costs them proportionately more to provision for higher quotas. this is precisely why Telstra’s competitors kick up a stink when Telstra adjusts its quotas without reducing AVGC charges proportionately – other ISPs’ margins get compressed.

*Why? Because when customers increase or decrease quota the amount of bandwidth they use does not change because CVC is charged based upon the size of the VC, not the peak bandwidth used by the ISP.*

when customers jump from a lower price point with a lower quota to a higher price point with a higher quota, the average amount of bandwidth used is higher. hence, ISPs have to provision more CVC capacity for these higher price point / quota products.

CVC has to be provisioned based on the average total bandwidth required plus a peak overhead/buffer for an aggregated stream of virtual circuits.

So, you’re going to reply to my nonsensical posts, why, because I’m wrong and must be corrected? You remind me of this comic. Both in that everytime you post I want to reply to it and correct your glaring inaccuracies, and in that you seem to want to do the same thing.

No one really cares what either of us think, not really. Do you really think people are going to read your thousand word essays? Do you really think people care if I’m wrong? Because if the NBN is really as bad as you say it is, why haven’t you contacted the papers, banged down on the doors of your local member, and ensured that the word get out there? Why resort to trying to covert a couple of geeks on the Internet?

Renai recently said you’re intelligent and above such piety debates as what you recieve with RS, and I agree, you do seem like you have some intelligence behind those big essays. Because you are capable of teaching. You have taught me a vauable lesson here, and I thank you.

The lesson I have learned is that, none of this debate really matters. It doesn’t matter that you quoted 38 GB instead of 380 GB. It doesn’t matter that you seem be confusing “quota” with absolute worst case maximum average transfer per month. It doesn’t matter than in your equation linking cost and quota the term representing quota is curiously absent. It doesn’t matter that you used $20 for the WLS when it is actually $22.10 according to the source I linked. It doesn’t matter that I was trying to disprove that it would result in a 10x – 20x increase by saying “it isn’t that bad” and your response didn’t manage to prove that.

It doesn’t even matter that after all this I have always stated I endorse a direct sink of capital to bring down CVC costs rather than an adjustment of CVC and AVC charges. Nor that quota someone purchases bears very little relation to their actual traffic patterns, in fact on average a customer will only use 15% of what they were allocated. Or that there is no direct proportionality between average bandwidth and contention ratio.

I see Simon Hackett here screaming from the rooftops about the problem with CVC and AVC charges, opening talks with NBN Co in an attempt to come to a solution. But apart from rant on a few comments here, what have you done Tosh? What have you done to make sure that the NBN gets exposed for all the flaws it has, because I can see, it is very important to you. I mean, who are you really? We’re both just guys from the Internet, and no one gives a [censored] about what we say except ourselves.

So congrats Tosh, you won this debate by default. I conceed. And that goes for you too Deteego.

*It doesn’t matter that you seem be confusing “quota” with absolute worst case maximum average transfer per month.*

no i’m not. the theoretical max for a 12mbit connection is 389GB. if you sell 12mbit plans with 50GB cap, then the “50GB” implies a “contention ratio”. of course, if subscribers buying the 12mbit 50GB plan in reality only download 30GB per month, then the capacity provisioning will reflect the “30GB” instead. but, at the end of the day, ISPs have to provision capacity based on some average usage (30GB converted to mbps) plus peak buffer.

*It doesn’t matter than in your equation linking cost and quota the term representing quota is curiously absent.*

the “quota” is expressed in terms of “average mbps”.

*It doesn’t matter that you used $20 for the WLS when it is actually $22.10 according to the source I linked.*

and +$2.10 changes the substance of the analysis? at least i didn’t assert “ULL/LSS = $16”

of course, the “quota” purchased reflects their average bandwidth usage. plans with higher quotas are more expensive, so consumers select plans that match their individual requirements.

*in fact on average a customer will only use 15% of what they were allocated.*

oh, please don’t regurgitate that NBNco rubbish propaganda. they picked out the most recent (outlier) year of the Market Clarity survey (which was skewed by the flood of “unlimited plans” and based on guesstimates and dodgy methodology) and made ridiculous generalisations about the entire market. a classic case of lies, damned lies and statistics.

*Or that there is no direct proportionality between average bandwidth and contention ratio.*

“quotas” reflect contention for a given speed tier and can be expressed in terms of average bandwidth.

Might as well note that I found it almost impossible to find accurate literature on how WLS + LLS vs ULL pricing works. I apologise for that, I finally found some accurate literature on the subject last night. Since it seems so important to Tosh that I’m wrong for “asserting” a figure of $16 when that was my understanding. It’s actually $2.50 + $22.10 for WLS, or $16 for ULL. Hell, I was going to mention that in my retort, and how it doesn’t matter in context of where I made the mistake but it was about this time I gave up. Of course Tosh here just won’t let it go.

the interesting revelation for me is that the cost of capacity is linear in terms of raw Mbits purchased but logarithmic in terms of the size of your subscriber base. and this has huge implications in terms of industry structure, etc.

*As I have eluded to before, it might just be a case of right problem, wrong solution.*

eluded what? you made a complete fool of yourself trying to argue that “SH’s solution is workable” only to engage in extensive, multi-post, back-tracking gibberish and then saying embarrassing things like: “i was always agreeing with what you were saying, etc”.

eluded what? you made a complete fool of yourself trying to argue that “SH’s solution is workable” only to engage in extensive, multi-post, back-tracking gibberish and then saying embarrassing things like: “i was always agreeing with what you were saying, etc”.

I just said what I eluded to. If you want to, like you did the last time we got into a heated debate, turn this into an debate about my ability to prove something that doesn’t actually require any proving because you feel it necessary to point out to me that which I already knew.

What part this is a non-trivial problem did you not understand? What part of the problem is considerably more complex when you try and consider more than one variable as I did in my simple analysis, did you not understand? What part of the current pricing is completely arbitrary and based upon false assumption did you not understand? And most importantly, what part of, since it seems you completely missed it, despite my attempt to point this out to you in what you called backtracking gibberish instead of reading it, the below did you not understand:

I think I remember saying at some point that the best way to reduce the costs of NBN services to customers and wholesalers was actually to sink money into it rather than to expect a return. Fluffing around with the CVC and AVC costs isn’t going to change this fact.

There is what I was eluding too right there.

and how do you know this when you already admitted you haven’t read my post?

To quote myself: Because honestly, even as a keen follower of all the NBN related news, who should probably be interested in your anaylsis of the situation, I didn’t read half of it, and not because I didn’t want to..

I didn’t read half of it simply because it didn’t make any sense. Which is my entire point. Somewhat hypocritical for you to call me out on not reading some of your posts when you clearly never read mine in full either? The difference being I really want to be able to make sense of what it is you have said.

i thought this was a forum for intelligent discussion of issues instead of discussing “each other”.

You’re right, I apologise. We seem to have a bit of history that is getting in the way of us being objective. However, even if it wasn’t for the history from the other thread I would still point out that in the above post, the start of this thread, you didn’t make a point. You said a lot of interesting things, and then it sort of lost cohesion near the end. Which is why I asked you, in the first instance, what is you are trying to say. A question you have yet to answer.

toshP300 thank you for your expansive effort. My concern with the Simom Hackett expressions was that Simon seemed to be positioning himself to call for more self-promoting vile and unfair regulation to be placed on Telstra simply because they are financially comfortable. Simon should learn that you cannot build up the weak by pulling down the strong and that the only way for all competitors in the new playing field (created by Senator Conroy) is fair and open competition.

– dialup over copper — effectively dead
– ISDN — effectively dead
– wireless — potential, but spectrum contention issues under high load
– ADSL1/2/2+ — current majority incumbent, approaching end of capability, copper aging
– HFC — currently cherry-picked into the most profitable areas only
– FTTN — the middle ground between xDSL and FTTH, still relies on aging copper, excellent for short term
– FTTH — expensive, but best solution in long term
– TCAS (tin cans and string) — string affected by water

There are proposals from all over the place for combinations of several of the above, or just one of the above.

Leave the other residential options intact, and let’s see how good residential FTTH uptake is?

Check back with the pilot residences who are running NBN FTTH FREE at the moment alongside their existing BB service until September and see how many disconnect and revert back to their existing service because it is cheaper. ( I bet some special wink-wink ‘thanks for being on the pilot program’ FTTH deals are cooked up so that they cannot possibly refuse).

Forget the BS spin about areas like Brunswick and the reasons they are slow on the uptake is because of ‘we cannot contact the landlords or the NBN Guide was not in non-English languages’ and at least acknowledge that a high density inner city suburb like that is already adequately serviced with high speed BB choices from multiple DSLAM ISP’s and 3G wireless, which is sufficient for the majority of their needs.

Because only about 30% of the population has access to HFC, which was installed in the cherry-picked most profitable areas only. HFC is available in my street, and costs about 4 times as much as my ADSL service for a comparable plan.

I know where it is rolled out, but leave it up don’t pay Telstra or Optus anything for their HFC customer bases, why is the taxpayer paying out on a infrastructure that should die a natural against FTTH anyway?

Let Telstra and Optus decide how much life is left in HFC – what is the NBN/Conroy afraid of here?

Put it in the too hard basket and go off on a hysterical tangent eh?, well at least it’s different from the standard exit strategy when it all gets too hard, which is quite often – the one liner of *facepalm*.

You have been telling us that HFC was and is, a complete failure – and suggesting, because of this, the NBN being somewhat similar will also fail.

HAVEN’T YOU? (I shout it out so you cant’ pretend you didn’t hear)!

In fact you said you have a HFC cable strung in your street and the only purpose it serves is for the birds to perch upon – DIDN’T YOU?

If it’s a “failure”, as YOU clearly said… why TF would YOU then call for, want and expect it to keep going? WELL? … Umm just because… doesn’t cut the mustard.

But now you want to keep the failed, bird perch (your words) HFC network operational, just to suit today’s debate as YOU are backed into that corner you keep telling us about and you think another about face, will go unnoticed and justify all your other dumb comments, clearly highlighted by numerous posters!

Sorry…LOL!

Once again you play the “contradictory” each way bet, but in the end, all roads still lead to FUD…!

15% of the market – as you say – where they are competing against the existing infrastructure, not to mention where people may be locked into two-year contracts with ISPs who aren’t signed up and accredited with NBN Co yet.

But I’ll give you a tip – beware that some people around here don’t like reasonable and logical arguments being made for the NBN!

“They have 15% of the market after 10 months in operation. I’m pretty sure any business would be happy with that result.”

No any business would NOT be happy with that poor result, you also omit to mention that those plans are virtual first pilot giveaways with zero monthly wholesale access fees to ISP’s from the NBN Co and do not reflect the true commercial NBN pricing starting July this year in any way.

Sadly MW, this is no longer reasoned and honest discussion between opposing sides, either friendly or even (courteously) heated.

Due to a small group of unscrupulous, unethical, narcissistic (never admit their wrong due to their ridiculously fragile egos) and downright dishonest anti-NBN individuals, the pro-NBN argument here especially, has now become purely an exercise in FUD-busting…!

What part of “trial” do you not understand? Many of us have tried to explain to you that uptake was not even a consideration in Tasmania yet you still ignore it and quote these irrelevant numbers as support for your discussions here. I would ask that you explain your reasoning for ignoring the facts, as presented, by the company that rolled out the network in that region.

I know it is a trial I have said so many times, I know they are trial/pilot prices, I know the NBN Co is not charging ISP’s a wholesale monthly access fee for residents in Tassie participating in the pilot.

“Many of us have tried to explain to you that uptake was not even a consideration in Tasmania yet you still ignore it and quote these irrelevant numbers as support for your discussions”

Here we go the ‘rigging the jury’ approach to any discussion on NBN uptake figures, it’s ok to quote and brag about connection figures, as in a 88% connection figure in Armidale for example, but if the figures are poor as in how many residents then go on and actually signed up with a ISP for a NBN Plan like in Tasmania the longest running pilot sites it is conveniently defined as being ‘not even a consideration’.

Well in that case Kevin none of the connection figures for any area are a ‘consideration’ either – sound fair to you?

“Here we go the ‘rigging the jury’ approach to any discussion on NBN uptake figures.”

Actually no I am not. This is a trial site, the only major trial site. There is only one, it has no bearing on future take up figures whatsoever in the positive or the negative. It is only the anti-NBN campaigners such as yourself who continue to use Tasmania as a reference site in regards to uptake.

“…it is conveniently defined as being ‘not even a consideration’.

Convenience has nothing to do with it. It is stated fact, not by me, they were not expecting much of a turnout in Tasmania which is quite likely one of the reasons they rolled it out there. When you are testing the pipes work do you want a lot of people using them? No.

“Well in that case Kevin none of the connection figures for any area are a ‘consideration’ either – sound fair to you?”

No it does not.

You can chop your logic all you like but you can’t use Tasmania as baseline for takeup expectations. Its been made very clear and you are not listening. You continue to reference that implementation for all sorts of nefarious reasons. It’s like listening to “The Australian” on repeat. If you want to argue the NBN then do it on grounds that have some merit.

If you make announcements about Tasmania along the lines of ‘the uptake is what we were expecting’ it would be good to see those predictions BEFORE the rollout started rather than after, all these hindsight announcements are great after the event, I am sure no matter what the figures were it would have been ‘that’s what we were expecting’ – the problem is what they were expecting say in July 2010 is not in the public domain.

The point I am making of which you are avoiding or you don’t get is that I understand it’s very early days for the NBN rollout, but you cannot have it both ways and select the statistics that are ok and brag about it as in connections in Armidale, which BTW includes a closed shop Uni campus, and the poor ones like connections and sign-ups in Tasmania you put aside as being not important and of no consequence.

“If you make announcements about Tasmania along the lines of ‘the uptake is what we were expecting’ it would be good to see those predictions BEFORE the rollout started rather than after”

True, it would have been.Then again, who would have predicted all the angst over this network. I certainly wouldn’t have.

“The point I am making of which you are avoiding or you don’t get is that I understand it’s very early days for the NBN rollout, but you cannot have it both ways and select the statistics that are ok and brag about it as in connections in Armidale”

Ok then, fair point. How many sites you think will be a reasonable number to start making noises? We havent seen any city sites yet so that will be interesting to see as well. Lets say 5 or so… eh?

Did you know that when ADSL was first offered by Telstra, there was a project in Launceston, the Launceston Broadband Project, which offered a $38.50 monthly discount on your Bigpond ADSL service? Since Launceston customers received a subsidy, it would be fair to say that their takeup statistics can be compared to the NBNCo takeup rate?

ADSL did NOT have a 15% take-up rate 10 months after launch – neither in Launceston nor nationwide.

15% market penetration (from 0%) in just 10 months, against established solutions (i.e. when you so NOT view the numbers in a vacuum, *hat tip to The Australian*) is a pretty good start.

Without context, you can make numbers do anything. Which is, ironically, how the Liberal Party has operated since Abbott took the reigns (I really wish they’d bring back Turnbull, I may not always agree with the fellow, but at least he tends to bring factual data to the table, not just hysterical jibber jabber).

Of course in your historical discourse of broadband in Tasmania you don’t mention the main problem ISP’s had offering plan competitive ADSL BB in Tasmania was the lack of competitive backhaul to the mainland, with Telstra being the only backhaul link supplier for many years.

Tasmania was the last to get ADSL2+ for that very reason with a limited number ISP’s starting out very tentatively with only one Internode prepared to subsidise the cost to offer some Tassie residents at limited exchanges with a somewhat reasonable (relative to mainland prices) cost effective ADSL service.

Basslink was supposed to be the savior of all of this but as you well know Basslink although physically laid as part of the power cable link the process of the communications fibre being made active was embroiled in political and commercial wrangling for many years and has only relatively recently been made available for commercial ISP use.

Of course Simon claims the NBN pricing has been stuffed up. Bevan is hardly an independent voice, either. Frankly anyone who has to run a business reselling services over the NBN at some point will always want it cheaper. There’s no point at which it ceases to be “too cheap, make it more costly”. :)

Internode hasn’t got to where it is by being shy about passing on charges. But that’s ok, because the network and services offset that.

And there will continue to be ISPs running on razor thin margins via the NBN, just as they do via Copper. And they’ll be cheaper. And that’s ok too — product choice is just as an important part of competition, as any physical competition might be.

The single biggest cause of much of the angst, comes down to ACCC bending over, in order to placate Telstra. They stand to do remarkably well due to the sudden increase in PoPs, what a coincidence.

Having said that, the NBN can’t play both sides of the game. If they want a flood of new users and an uptick in demand, they have to compete with whatever is already in the market place. Prices have to come down to be at least comparative.

In the hurry to get NBN out the door, the RoI periods (when you look at the decades we have achieved over copper) seem to be very short. Had they been lengthened, it would have permitted more agressive pricing.

the building of the new fibre network and the industry-wide transition to a genuine wholesale-only, open access model undoubtedly marks a new chapter in the evolution of telecommunications in Australia. however, the implications of this are often misrepresented or miscontrued particularly by politicians selling the project. the differences between the old copper regime and the new fibre regime essentially boils down to the changed “competitive dynamics” and the consequent impact this will have on the industry landscape.

under the current regime, the “market dynamics” are driven by ongoing arbitrage of two different means of access to the underlying physical infrastructure. the primary (and most universal) means of access to the copper network is via purchasing the Telstra Wholesale product and the secondary (and most direct) means of access to the infrastructure is by leasing ULLs. the current pricing dynamics are characterised by a long-term downward trend in the cost of accessing ULL underwritten by regulatory fiat, which results in a corresponding decline in the cost of wholesale ADSL as Telstra attempts to protect the market share of its higher margin wholesale product.

the pricing model associated with the Telstra Wholesale product essentially mirrors the wholesale pricing model adopted by NBNco. this is not surprising as both pricing mechanisms are designed to create artificial bandwidth scarcity, thereby, allowing Telstra and NBNco to extract a “rent”. however, there are key differences between wholesale ADSL and wholesale fibre. in the case of the NBN, the deployment of GPON (or point-to-multipoint) technology introduces a degree of technical contention into the fibre network. the artificial contention, on the other hand, is caused by the artificial pricing of capacity above the level that reflects underlying technical contention ratios. while the transition from the old copper regime to the new fibre regime results in the rationalisation of 5000 exchanges down to 121 POIs, it’s important to remember that the “CVC charge” is not a backhaul charge (as NBNco reminds us) and ISPs still have to separately purchase backhaul from the POIs back to their POPs.

in the case of the copper infrastructure, there’s zero technical contention in the network as most residential premises are serviced by dedicated copper pairs all the way back to the local exchange (or point-to-point). furthermore, Telstra Wholesale delivers the “product” right at the doorstep (POPs) of the ISPs at the major capital cities, and hence, the total cost of the product incorporates backhaul pricing. in this context, the “rent” extracted by Telstra in the form of “AVGC charges” covers both the customer access network and the backhaul routes. “AVGC charges” are simply a mechanism of pricing bandwidth or contention. as a non-structurally-separated and vertically-integrated owner operator of the copper network, Telstra’s total return on the copper infrastructure is comprised of both “wholesale margins” and “retail margins”.

in the absence of ULL competition, Telstra’s primary strategy to protect (or maximise) the underlying value of its fixed network is to price contention at a sufficiently high level such that “total industry revenues” at the retail level are maximised. in other words, Telstra has to make it very difficult for its wholesale customers (who’re simply reselling a product) to undercut Telstra’s retail pricing without offering inferior (highly-congested) services to its own (non-Telstra) retail customers. this is achieved by implementing a “two-part tariff” pricing mechanism and forcing purchasers of the Telstra Wholesale product to pay separately for “minimum contention” at sufficiently exorbitant rates. not surprisingly, as the market shifts and product pricing evolves, any failure to adjust the level of the “AVGC charges” in lock-step to reflect a more competitive Telstra retail offering leads to accusations of Telstra’s “wholesale arm” favouring its “retail arm”.

the introduction of regulated ULL competition, however, was a game-changer in that it set-up a market arbitrage opportunity between the Telstra Wholesale product and separate leasing of ULL and competitive backhaul. this secondary means of access to the fixed infrastructure effectively allows Telstra’s competitors to by-pass the payment of “rent” over the uncontended (point-to-point) copper network and over Telstra’s local backhaul routes. of course, this “arbitrage” was only feasible at major exchanges with competitive backhaul pricing and, in turn, competitive backhaul is only built in areas of sufficient market size.

the upshot of all this is that the fragmented broadband market of the past decade, with 5000 exchanges serving individual micro-markets of various sizes, has relatively favoured the continued existence of small, nimble participants who are prepared to battle the dominant incumbent for direct access to exchanges with viable market characteristics. it’s the rapid growth in industry revenues in a previously-unsaturated market, the persistent and ongoing erosion of Telstra’s “infrastructure rent” via “product arbitrage” and the “fractured” nature of the national broadband market that has fostered the existence and growth of small ISPs.

the future state of play under the new fibre regime will be completely different in all these respects. for starters, the market is now close to saturation and easy pickings in the form of “Telstra product arbitrage” will no longer exist under the new fibre regime. more importantly, some key differences of the new fibre platform encourage and facilitate “customer aggregation” to exploit “economies-to-scale”. at the most basic level, the introduction of “CVC charges”, which cannot be “by-passed” unlike “AVGC charges”, create (or re-instate) new “overheads” or “economies” in the customer access network portion of the infrastructure. at a higher level, the rationalising of 5000 exchanges into 121 POIs reduces the level of market fragmentation, creating larger “discrete addressable markets” and increasing the “available economies” from “subscriber aggregation” and backhaul provisioning to each individual POI.

hence, while the old “competitive dynamics” revolved around the “arbitraging” of Telstra’s wholesale and ULL products in “fragmented markets” amidst a secular decline in ULL pricing, the new “competitive dynamics” will be driven by the imperative to consolidate customer bases to exploit the full “economies-of-scale” available under the new, open access fibre regime. the underlying imperative for industry consolidation means that, contrary to the political spiel, the new fibre era increasingly favours the survival and expansion of the larger telcos with their huge subscriber bases at the expense of the smaller ISPs, including Internode. furthermore, Telstra will be a ferocious competitor on the new fibre platform once freed from their previous imperative as a network owner operator to preserve the value of the copper network. this is because, in the past, their vertically-integrated business model kept them always on the backfoot and lagging the market in terms of delivering “innovation” in the form of bigger plans and lower prices. the only new entrants the NBN will likely attract will be other big telcos such as Vodafone looking to capitalise on product-bundling opportunities, and not small fries.

the fact is, there’s nothing special about the “250,000” subscriber count or the “$1mln/mth gross overheads” around which Internode seems to suggest NBNco should re-calibrate its schedule of charges. given that the big telcos will have existing subscriber counts vastly exceeding “250,000” and the small ISPs outside the big5 will have substantially fewer customers than “250,000”, the only significance of this magical “250,000” subscriber count is that it mirrors Internode’s current positioning (or scale) in the industry. furthermore, $1mln/mth or $12mln/yr in overheads may be intimidating to a small ISP, but in reality, it’s a drop in the ocean considering that NBNco’s projecting total annual revenues that run into the billions. hence, what is “arbitrary” is the “250,000” subscriber count and the “$1mln/mth gross overheads” that Internode is trying to “spotlight”, and not the proposed schedule of AVC and CVC charges which are clearly carefully calibrated to maximise NBNco’s chances of recovering the $50bln cost of the NBN.

the truth is, due to the imperative to recoup the massive cost of building the super-expensive, national fibre network, the new industry regime envisioned by NBNco has little place for market minnows. while close competitors such as TPG and iiNet became public companies long ago and have been participating in the ongoing industry consolidation, a reluctant Internode is basically left playing catch-up. so, at the end of the day, we’ll end up with a brand-spanking, new fibre network to “feel good” about, where “ADSL-equivalent” products will cost significantly more and faster, premium ports will be prohibitively-expensive for the average consumer, while the pace of consolidation in an already-concentrated industry will be accelerated. sweet.

the current pricing dynamics are characterised by a long-term downward trend in the cost of accessing ULL underwritten by regulatory fiat, which results in a corresponding decline in the cost of wholesale ADSL as Telstra attempts to protect the market share of its higher margin wholesale product.

Which is bad because the it means upgrades to infrastructure bar anything considered essential or without a government subsidy or mandate will not occur because the dominate wholesale provider (Telstra) does not produce enough capital under ULL to cover the costs of upgrade.

Telstra will refuse to do anything unless they get assurance from the government that they will maintain their market and/or they get a subsidy to do it. Otherwise the fixed line market stagnates and all providers do the bare minimum. Which is already happening.

The costs will continue to drop for Broadband, which will create a problem that any infrastructure upgrade will actually result in an increase in prices for service in order to return the capital for the upgrade. We are already pretty close to this eventuality.

in the case of the copper infrastructure, there’s zero technical contention in the network as most residential premises are serviced by dedicated copper pairs all the way back to the local exchange (or point-to-point).

GPON may have a contention ratio of approximately 13 on the downstream and 11 on the upstream in the worst case, but you must remember that worst case is everybody on a given GPON using 1000/400Mbps connections. We can therefore, in most cases, consider the technical contention here negligible because the majority of people will only be getting 100/40Mbps or less, and if that trend changes we can change the GPON to a better model (in the same way you can upgrade ADSL2+ to VDSL2).

Further, in terms of trade off, having a technical contention of such a negligible amount compared to having diminishing bandwidth delivered to those further away from the DSLAM is a far more acceptable outcome.

And finally: what precisely is the point to this other wall of text? Fortunately for you I could actually pay attention to it, so kudos for that but again there seems to be a lack of a point. Well that’s not entirely true, it has a point: The NBN is bad and the market will change dynamically under it. Simon Hackett whinging about it won’t change anything. Which isn’t anything you’ve already said before.

So. Do you have any proposed solutions for the problems you have outlined for the NBN? Can you contrast this to another plan? Or are you just posturing and leaving the actual trying to fix the problem to other people, like, Simon Hackett actually?

there’s a crucial difference between trying to “fix the problem” from the point of view of the average taxpayer/consumer (i.e. building a network that is economic and affordable) and trying to “fix some ISP’s bottomline”.

i should add, a reversion to the 14 POI model would be equivalent to the Telstra Wholesale product but with “simplified” AVGC charges that reflect a single point of aggregation, and hence, are invariant to the region being serviced. if i’m correct, AVGC charges currently reflect multiple points of aggregation, and are most responsive to changes in ULL pricing only in the band 2 ESA where there’s competitive backhaul.

Do I detect sarcasm at the end of this post? Just making entirely sure before I comment further. In general though you are making a great deal of assumptions as to how the market will operate in the future. I don’t think we can gaze through the crystal ball very far without having something to work with. Give it a couple of years and then you can probably state some potential outcomes with any certainty.

Beyond all the complaining about the NBN, from what I have seen they are trying to bring a wholesale network into the market place with a minimum amount of disruption. Its bad enough they are sidelining the entire wholesale sector….. errr cough Telstra cough :-)) so it’s seem reasonably logical to implement a pricing structure that reflects the current market model while flexible enough to be a completely different model in the future. It might be unappealing on the high volume plans in the short term but market forces will beat that into shape over time, you just watch. We like our damn Internet a lot in this country.

*so it’s seem reasonably logical to implement a pricing structure that reflects the current market model while flexible enough to be a completely different model in the future.*

they HAVE to implement their proposed pricing structure due to the massive cost of the project. there’s no way of hiding the costs.

*It might be unappealing on the high volume plans in the short term but market forces will beat that into shape over time, you just watch. We like our damn Internet a lot in this country.*

well, that’s the thing… NBNco is essentially Telstra 2.0 (or even worse because it’s going to be run by bureaucrats, it’s more like the old Telecom). however, in the case of Telstra, market forces have been able to force the incumbent to increase quotas on internet plans via ULL competition. this is no longer possible because the “CVC charge” cannot be bypassed because it’s not a “backhaul” charge at all. it’s a monopolistic rent that cannot be circumvented through “market innovation”. after all, no-one’s allowed to build competing fibre networks to undercut NBNco.

“NBNco is essentially Telstra 2.0 (or even worse because it’s going to be run by bureaucrats, it’s more like the old Telecom)”

Not correct on both counts. NBNCo, a taxpayer owned entity of national infrastructure with the interests of supplying services on an equal footing across this country providing a level playing field for the retail sector is a far cry from Telstra… a private company who’s natural interests are maximising shareholder profits deploying where they can make money and hindering competition wherever possible in order to retain their market position. Telecom on the other hand was a government run entity with no demand for innovation or improvement whereas NBNCo is a business demanding real outcomes and returns for the goverment aka you and me while providing for and delivering services in the *national interest*.

“however, in the case of Telstra, market forces have been able to force the incumbent to increase quotas on internet plans via ULL competition. this is no longer possible because the “CVC charge” cannot be bypassed because it’s not a “backhaul” charge at all. it’s a monopolistic rent that cannot be circumvented through “market innovation”. after all, no-one’s allowed to build competing fibre networks to undercut NBNco.”

Well you want to run on the playing field you have to pay rent. People need to get over competing fibre networks already. NBN is to be the underlying infrastructure of Australia’s network. Its the digital version of the road. And don’t say roads are free because they are not. We pay for them one way or another. At least they are trying to make the NBN pay for itself.

O.K. the world turns, the sun rises on a new day and change happens. All would agree that the FONBN for all would be good. But at what cost and to what advantage?

The Labor Government has one thing going for it at the moment and that is the fact that their promise of a NBN for all was embraced by most Australians. After the Burning Bats the Building Revolution waste and now the Set Top Boxes folly (no to mention the Cash for Clunkers) if Labor stuff-up this NBN roll-out they will be finished for sure at the next election.

The problems for the NBN Co are massive and gigantic. To bring this NBN promise to fruition on time and within budget is almost an impossibility. The requirement of 5000 hook-ups per day for seven years wont happen. Extended time frames will be needed and cost escalation will be enormous. It is probable that with a change of Government the FTTN system will be resurrected and delivered.

I think NBN will be a large part of Labours success in the next election. I am traditionally a Liberal voter however nothing presented by the Liberals makes sense. Malcom is a puppet of his party and all they do is attack Labour like a bull mastiff. They are not interested in doing anything constructive with the current government and play the role of opposition to the point of blind stupidity. Thats why I will be voting Labour come the next election.

Your response does you no credit at all. Opposition of every policy regardless of its merit is stupiditiy at its finest. A great deal of Australia support the NBN as well as being concerned about the cost. The concern is reasonable, this is a billion dollar project after all. Uptake figures over the next 12 months will bear witness to the support this country has of the NBN and the future it will bring for their children, mine included..

Chuq your claim that all people with opposing political views to yours are simplistic Australians would probably be correct when compared with your gigantic mental capabilities and capacities and your Einstein like incredible and fantastic brain. Then again self praise is no recommendation is it Chuq. lol.

Read what I wrote Sydney – did I say that? You might have interpreted it as that but it’s certainly not what I said. I thought Malcolm Turnbull would have been a great PM of a Liberal Government (despite me disagreeing with his NBN stance – which wasn’t a major issue at the time). I thought the Liberal parties’ OPEL plan was great – I was pissed off at Labor for cancelling it – but then I was happy with them for the FTTH NBN plan. You see? I decide what I like based on policy, not just blindly following what another organisation (or political party, or company) says.

A great example is Alan Jones’ recent screw-up – if it wasn’t for the fact that he thought “laser technology” was different to fibre optics, he wouldn’t really care. He only supported “lasers” because he believed them to be different to something Labor was doing.

The ACCC is a quasi Government body with the Head appointed by the Government (BTW it will be interesting to see who takes over from Samuel), it can only act with the legislative powers it has been given, you could rightly argue the legislation is not strong or broad enough, but that unfortunately is in the hands of the whims of Parliament.

You would hope it will scrutinise the NBN Co with the same degree of attention it gave to Telstra over the last 15 years, but somehow I doubt it.

After all, this is the same ACCC YOU previously (and your mate pretty much just) accused of being biased against Telstra, for doing their job. The exact same job you now want them to do on the NBN?

The same ACCC ‘s boss, Graeme Samuel (for now), YOU and the NWAT crew referred to as a “wayward Sheriff”…

And the same ACCC who inevitably were found to be correct in their adjudications in regards to Telstra, but yet Telstra continued to trudge off to court simply to delay their findings?

Anyway to answer your question…of course the ACCC should/will.

But imo, the NBN monopoly will not have the same troublesome issues the Telstra monopoly (YOU AND YOUR MATE SUPPORT) did, while ever the wholesaling NBN does not have a direct to the public, retail/RSP department, as Telstra did/do.

The conflict of interest in being able to sell to your own retailer and thus favour them and hinder your competitor (and yes it happened, in relation to exchange access) is the most troublesome part of the Telstra monopoly, which the NBN does NOT have.

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